Bank of America Securities analyst Joanna Gajuk maintained a Sell rating on Enhabit, Inc (EHAB – Research Report) today and set a price target of $9.00.
Joanna Gajuk’s Sell rating for Enhabit, Inc (EHAB) is due to a combination of factors. Gajuk points to the company’s weaker than expected performance in Q3, as indicated by a temporary waiver received for a potential covenant breach. This covenant requires a maximum net leverage of 5.25x and suggests that either the company’s EBITDA in Q3 could be at least 15% below consensus, or EHAB’s net debt increased by over $19m during the quarter. This, in turn, suggests that the company’s fundamentals are not performing as well as expected. The delay in benefiting from the Medicare Advantage contracting strategy could be a specific factor in this situation.
Further, Gajuk recalls that EHAB received a relief on its covenants in late June 2023, which had implied that the company was underperforming according to its expectations. This was followed by a significant miss on Q2 EBITDA and a downward adjustment of its guide by more than expected. When considering the temporary covenant waiver, it implies either a lower EBITDA and/or higher debt. If we take the net debt as unchanged, the covenant implies a lesser Q3 EBITDA than expected. Alternatively, if Q3 EBITDA aligns with consensus, it implies that the net debt increased significantly. This would suggest weak cash flows during Q3. Therefore, the Sell rating is maintained due to the pressure from Medicare rates and a negative shift in mix, combined with high leverage.
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Enhabit, Inc (EHAB) Company Description:
Enhabit Inc provides home health and hospice services in the United States. It offers care where patients prefer it: in their homes. It operates business in two segments: home health and hospice. Its home health agencies provide a comprehensive range of Medicare-certified skilled home health services, including skilled nursing, physical, occupational, and speech therapy, medical social work, and home health aide services.
Read More on EHAB:
- Enhabit management to meet virtually with Oppenheimer
- Enhabit begins exploration of strategic alternatives
- Jana buys Leidos during Q2, exits BlackSky Technology
- AREX Capital Management issues letter to board of directors of Enhabit
- Enhabit cuts FY23 adjusted EPS view to 28c-46c from 50c-89c, consensus 65c
